When tallying profit margins, 280 basis points count. That’s the amount of margin decline suffered at PayPal last quarter compared to 2Q12, and the fall is surprising. Don’t get us wrong, a 23% profit margin and $1.62 billion of revenue last quarter is nothing short of lovely, but the margin was 25.8% in the same quarter in 2012. Not surprisingly, eBay stock is off around 9% since these numbers came out on July 17. PayPal blames the decline in revenue on “lower transaction margin and investments in consumer awareness, product initiatives and merchant ubiquity.” Maybe. But can it be that eBay runs PayPal for declining margins? (That’s a rhetorical question for all you Bank Innovation newbies.) No, the better explanation is slowing growth. Over the last six quarters, the growth rate for the net number of PayPal payments has declined, to 24% from 31% in 1Q12. Again, 24% is a mighty high growth rate, but a slowdown will hamper net margins. To be sure, PayPal has lots going on. To hear the official eBay review of PayPal’s quarterly earnings is to hear a story of golden performance and prospects. In Q2, PayPal continued to expand its footprint, increasing merchant coverage [...]
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